I know people who do not know that there are online places to invest. Or they are afraid of sending money to a place that they cannot walk into within 5 miles of their home. You have to admit that we see some of that behavior at bogleheads.org especially when it comes to emergency funds.

So if a bank has a captive audience, why would the bank want to pay market rate interest for CDs. All that would do is cost them free money.

Our small neighborhood commercial strip is challenging for most small merchants but there are seven (!) brick and mortar banks within four blocks, all offering lousy CD rates. There are also two Edward Jones offices in the same few blocks, with a third office on the other side of the neighborhood where the fishing boats berth. I think a fair number of people like to conduct financial dealings face-to-face, however much it may cost them. If they even know how much it costs them.

Good question. Perhaps because the pipeline for such products is already set and (like others posters have mentioned) there are long-term customers who diligently use them. So why would banks bother changing or getting rid of such products. I am sure the laddering concept was just banks being creative so their customers feel fancy. Some banks even sweeten the deal by including CD money in their requirements to waive fees or make you eligible for their more "premium" products.

I can't think of anything more luxurious than owning my time. - remomnyc

In the absence of the Internet and being able to shop for the best rates, we wouldn't even know we were being taken for a ride by the bank.

It's almost like you have to be on top of things all the time checking rates.

I am trying to simplify my accounts -- I currently bank with 5 financial institutions.
- 1 regular bank for easy ATMs
- 1 credit union for decent rates on CDs
- 2 online banks for savings rates (for some reason both offer lousy CD rates, I have two so I can move money to the higher rate one since they sometimes will lower their rates)
- 1 brokerage

I can't figure out a way to consolidate these without taking a hit of some sort. Maybe I could try using brokered CDs and get rid of the credit union account.

They would only offer 1% on a 5-year if they were not strongly interested in the business. The FDIC-mandated business plan required for FDIC insurance normally requires offering depository and credit services, but a bank may favor participating in some activities over others and set rates accordingly.

I know people who do not know that there are online places to invest. Or they are afraid of sending money to a place that they cannot walk into within 5 miles of their home. You have to admit that we see some of that behavior at bogleheads.org especially when it comes to emergency funds.

So if a bank has a captive audience, why would the bank want to pay market rate interest for CDs. All that would do is cost them free money.

I know someone who is like that. He actually got charged monthly from his saving account if not certain criteria were met
Another coworker too is running to the bank every other Friday (when we get paid). Seems he doesn't believe in banks at all and keep everything in cash

"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

I knew someone who had almost $2 million in a non-interest bearing checking account when she died. That money had been deposited over a thirty year period. Even a lousy CD rate would have made a huge difference in the total amount. I would have thought that someone would have offered to at least help her open a money market account. She made regular visits to the bank and was friendly with the tellers. Maybe they did offer and she declined.

Her heir left it there out of respect for her mother because that's where she put it. It will probably still be there when she dies, too.

A thought just occurred to me -- some banks want to steer people to their wealth management arms by offering lousy CD rates. They are OK with losing some business to online banks. And if an occasional sucker falls for it, then it's free money for them.

I started this thread because I felt it's almost like cheating their customers. And then they talk about how trustworthy they are!

I know people who...are afraid of sending money to a place that they cannot walk into within 5 miles of their home.

This is applies to both my parents and my in-laws.

I've been trying to educate them on internet bank for years - they'll have none of it (for the reason livesoft mentioned). At least they both use a credit union to invest their excess cash which offers far better rates than brick and mortar banks.

I know people who...are afraid of sending money to a place that they cannot walk into within 5 miles of their home.

This is applies to both my parents and my in-laws.

I've been trying to educate them on internet bank for years - they'll have none of it (for the reason livesoft mentioned). At least they both use a credit union to invest their excess cash which offers far better rates than brick and mortar banks.

Sometimes you can lead a horse to water, but...

Keep trying, tell them it’s FDIC insured, tell them that is where you keep your money! It worked for my folks, it can work for yours.

Many senior citizens will only deal with banks. (My parents are good examples.) It doesn't matter if 1 year treasuries are offering higher yields than 5 year bank CD's. They will not open a brokerage account or sign-up for Treasury Direct to have access to the treasuries.

I know people who...are afraid of sending money to a place that they cannot walk into within 5 miles of their home.

This is applies to both my parents and my in-laws.

I've been trying to educate them on internet bank for years - they'll have none of it (for the reason livesoft mentioned). At least they both use a credit union to invest their excess cash which offers far better rates than brick and mortar banks.

Sometimes you can lead a horse to water, but...

Keep trying, tell them it’s FDIC insured, tell them that is where you keep your money! It worked for my folks, it can work for yours.

Ha, easier said than done. I have/manage multiple times the amount of money both sets of parents do combined (and they both know this), yet they still think internet banks are more risky that B&M banks (this despite my best efforts to educate them otherwise). They know I've been using internet banks for well over a decade too. Still no progress on getting them to see the light. Your parents far more reasonable (open to ideas other than their own) than mine (or my in-laws). Sometimes one just has to throw in the towel.

Our family had some trouble getting my dad to even open a local bank checking account and then he agreed to actually put some of his savings into a CD there as well. He had a stash of cash in a box at home before that. I don't think anyone has even mentioned online banking to him. It's his money and he is capable of making his own decisions even if they are less than optimal. His SS and VA pension income combined are about 5X his monthly expenses so it does not really matter much either. He has nothing that most people would call "investments".

I use a local bank extensively for holding short term "cash" as well as their fantastic and free customer service. It helps that I already drive by it a couple of times a week during business hours so stopping is convenient if needed. However, anything more than $100 or so or any $ held for more than 30 days gets transferred out to other accounts. This same bank often has the lowest mortgage rates that I have ever seen so they have that as well.

I know people who...are afraid of sending money to a place that they cannot walk into within 5 miles of their home.

This is applies to both my parents and my in-laws.

I've been trying to educate them on internet bank for years - they'll have none of it (for the reason livesoft mentioned). At least they both use a credit union to invest their excess cash which offers far better rates than brick and mortar banks.

Sometimes you can lead a horse to water, but...

Keep trying, tell them it’s FDIC insured, tell them that is where you keep your money! It worked for my folks, it can work for yours.

Ha, easier said than done. I have/manage multiple times the amount of money both sets of parents do combined (and they both know this), yet they still think internet banks are more risky that B&M banks (this despite my best efforts to educate them otherwise). They know I've been using internet banks for well over a decade too. Still no progress on getting them to see the light. Your parents far more reasonable (open to ideas other than their own) than mine (or my in-laws). Sometimes one just has to throw in the towel.

I used to feel this way but have had a course correction. For a not so insignificant segment of people, especially those of a certain age, using a local bank, not using online banking, allows them to function independently and with a much lower risk of falling prey to fraud or scam. An extra % of interest is a small price to pay. In return, the person can continue to be in charge of their own finances. The person has a much lower risk of making a mistake and sending money to the wrong place with an errant mouse click. They are much less likely to be scammed by a phone call because they know that they can go to the bank in person to straighten any problems out. It doesn’t matter that their lack of computer “alertness” leads to malware on the computer or other dangerous security issues. And on and on. For anyone on this forum, it may be hard to relate. But if you have someone who finds it challenging to learn to use a Roku, doesn’t it make sense that they are more comfortable with a local bank?

In the absence of the Internet and being able to shop for the best rates, we wouldn't even know we were being taken for a ride by the bank.

It's almost like you have to be on top of things all the time checking rates.

I am trying to simplify my accounts -- I currently bank with 5 financial institutions.
- 1 regular bank for easy ATMs
- 1 credit union for decent rates on CDs
- 2 online banks for savings rates (for some reason both offer lousy CD rates, I have two so I can move money to the higher rate one since they sometimes will lower their rates)
- 1 brokerage

I can't figure out a way to consolidate these without taking a hit of some sort. Maybe I could try using brokered CDs and get rid of the credit union account.

I'm a fixed income type person and don't invest in stocks.

I also don't do stocks.
A few months before I need to get a new CD, I start watching Kevin M's contributions....but you probably already know about his contributions.search.php?author_id=14152&sr=posts

I also keep an eye on high quality intermediate muni funds like VWIUX and BMBIX. If you go there, maybe also read up on tax loss harvesting. There's a Boglehead who's name escapes me who quit doing CDs and uses only munis because he says the gain is about the same and it's low maintenance. I'll try to find his contribution.

In the absence of the Internet and being able to shop for the best rates, we wouldn't even know we were being taken for a ride by the bank.

It's almost like you have to be on top of things all the time checking rates.

I am trying to simplify my accounts -- I currently bank with 5 financial institutions.
- 1 regular bank for easy ATMs
- 1 credit union for decent rates on CDs
- 2 online banks for savings rates (for some reason both offer lousy CD rates, I have two so I can move money to the higher rate one since they sometimes will lower their rates)
- 1 brokerage

I can't figure out a way to consolidate these without taking a hit of some sort. Maybe I could try using brokered CDs and get rid of the credit union account.

I'm a fixed income type person and don't invest in stocks.

I also don't do stocks.
A few months before I need to get a new CD, I start watching Kevin M's contributions....but you probably already know about his contributions.search.php?author_id=14152&sr=posts

I also keep an eye on high quality intermediate muni funds like VWIUX and BMBIX. If you go there, maybe also read up on tax loss harvesting. There's a Boglehead who's name escapes me that quit doing CDs and uses only VWIUX because he says the gain is about the same and it's low maintenance. I'll try to find his contribution.

Wow. Didn’t know there were other people that stayed away from stocks. I’ve actually tried to do polls in non financial forums that I frequent and never came across even one person that wasn’t in stocks.

Thanks for the pointers. It looks like Vanguard has better fixed income funds than Fidelity.

We bank at Chase. My wife doesn't do internet banking; consequently, we don't have internet banking accounts. However, we have accounts with local b & m banks that offer rates slightly lower than internet banks. When I write checks for deposits in these banks that are $10,000 or over, we receive a call from our "personal" banker offering investment alternatives that would provide higher return. When I ask for investments that would provide returns higher than our Vanguard funds or rates higher than the bank across the street, the conversation ends. Apparently Chase has no need for more capital. We maintain a balance over $15,000 at Chase so that we receive a discount on our safe deposit box and no fee services. Besides, my wife has a friendly relationship with the tellers at Chase. I rarely go to the bank unless I need to use the safe deposit box.

Inertia. That is why special rate CD’s are oddball lengths of time like 15 months. That way the person who put $20,000 in a 1 year CD 15 years ago never gets the special rate.

There is a bank in my area that offers these special rate CDs at oddball maturities. Their CDs also renew for the same term automatically. There is only a 7-day grace period where you can get your money out without penalty or roll over to a different maturity. They will not offer one that does not renew itself. Of course, when renewal time arrives, the specials are for different terms. So, the renewal CD will be a very low interest rate. I am in the process of moving my CDs to broker CDs. The rates are better and they do not automatically renew if I am not paying attention.

My credit union is not super competitive with savings and CD rates, but multiple accounts and multiple financial institutions drive me (and the husband) up a wall. So we keep it simple -- one CU and one brokerage.

I see a lot of responses along the lines of "because they can." I don't think that's correct (but really don't know any better than others). I think it's more akin to why a financially secure person might choose not to have a mortgage even though they could. If you have enough money, why would you borrow some from others?

It depends on the amount and interest rate. I have $15K in a savings about at Ally. This past year the interest rate was 1%. I pay tax on the interest at 28% marginal (old rates). Then I have the hassle of dealing with the paperwork and have to pay my accountant to do this. It also counts towards my MAGI for Medicare IRMAA. It is hardly worth it for $15K. I have about $25K in a Chase checking account as I was planning to do some house renovations. I'm not sure I'll bother to move it.

I see a lot of responses along the lines of "because they can." I don't think that's correct (but really don't know any better than others). I think it's more akin to why a financially secure person might choose not to have a mortgage even though they could. If you have enough money, why would you borrow some from others?

Are you suggesting that CD rates are low because banks don't want deposits? Banks take in deposits at zero to a marginal rate and lend out money at a higher rate. They make money on this spread. Low cost deposits are a source of strength for a bank and one reason banks have branches - to collect low cost deposits. Deposits are much lower risk funding than relying on short term market for funding as financial institutions discovered not long ago. If a bank offers a 0.1% 1 year CD and invests the money in a risk-free 1 year treasury at 1.78%, the reap the difference. That's a risk-free example. They obviously go for higher yield lending options. It's also a win for the customer that was also fine with their money earning 0% in a FDIC insured checking account.

You will notice that most physical banks have very similarly (low) yields even as rates rise from historic lows. They don't have much deposit competition and don't want to encourage its development either. They have bank branches for a reason - to target people who find these offers interesting. Their CD customers tend to be older, risk-averse, and not users of comparison sites. They like to know their bank.

Online banks have CD offerings that target risk averse customers who are more technologically literate and realize a bank is a bank. Still - they earn a spread. Since they have lower costs than a physical bank they still profit handsomely from such offers.

it took me a long time to get my parents out of their .01% B&M account and into at least Ally. Very hard for them to understand the concept that the B&M bank was making a killing off of them. Their IRAs are still trapped in crappy CDs from the same bank.

In my opinion these banks take advantage of the elderly and young unsuspecting people. It’s a shame...

Prior to the financial crisis, I remember my CU and big banks offering long term CDs (5 year) that were at least competitive with the rate offered by online savings accounts. After the crisis, they dropped the rates to abysmal levels and they have not moved at all despite all the recent fed rate increases. My CU has a decent rate for 5 year CDs, but that's it.

it took me a long time to get my parents out of their .01% B&M account and into at least Ally. Very hard for them to understand the concept that the B&M bank was making a killing off of them. Their IRAs are still trapped in crappy CDs from the same bank.

In my opinion these banks take advantage of the elderly and young unsuspecting people. It’s a shame...

That is my concern too -- that they are actually preying on those that aren't paying attention.

I am starting to think that the best fixed income investments would be treasuries. At least you get what everyone else is getting. It may not be the best rate, but it is in some sense a market rate.

I have been trying to get my elderly mother interested in placing some of her CD/Savings in the Credit Union which is just other side of the intersection from the bank she loves (used to be Arlington Trust) where she might get $50. a month instead of a nickel (just a small exaggeration)
Some people such as my mother simply let the CDs roll over without thinking about it-perhaps that is why those banks don't do any better than they do -and the Credit Union has a "no penalty" CD

I see a lot of responses along the lines of "because they can." I don't think that's correct (but really don't know any better than others). I think it's more akin to why a financially secure person might choose not to have a mortgage even though they could. If you have enough money, why would you borrow some from others?

Are you suggesting that CD rates are low because banks don't want deposits? Banks take in deposits at zero to a marginal rate and lend out money at a higher rate. They make money on this spread. Low cost deposits are a source of strength for a bank and one reason banks have branches - to collect low cost deposits. Deposits are much lower risk funding than relying on short term market for funding as financial institutions discovered not long ago. If a bank offers a 0.1% 1 year CD and invests the money in a risk-free 1 year treasury at 1.78%, the reap the difference. That's a risk-free example. They obviously go for higher yield lending options. It's also a win for the customer that was also fine with their money earning 0% in a FDIC insured checking account.

Yes, that's what I'm suggesting, depending on the bank. If Chase or BOA relied on making a 1.5% return, I suspect they wouldn't be able to afford to keep the branches open let alone make a profit on top of that. Who would invest in a business making 1.5%? I can go buy treasuries myself to make that. In fact, I bet Chase would rather I not have much money in my accounts with them so they could make some real money on overdraft fees and the like...

Prior to the financial crisis, I remember my CU and big banks offering long term CDs (5 year) that were at least competitive with the rate offered by online savings accounts. After the crisis, they dropped the rates to abysmal levels and they have not moved at all despite all the recent fed rate increases. My CU has a decent rate for 5 year CDs, but that's it.

This was my observation as well. I used to have Internet bank CDs and savings as well as B&M bank CDs until my CDs came up for renewal c2010-12 and the B&M rates were awful. Pretty much have been ever since.

My credit union is not super competitive with savings and CD rates, but multiple accounts and multiple financial institutions drive me (and the husband) up a wall. So we keep it simple -- one CU and one brokerage.

I'll just take my 1% interest and meander on my way....

I admire you both for choosing simplicity over chasing returns. I'm trying to simplify. Hope to get to where you guys are or at least down to 3 accounts from my current 5. And that does not even include treasury direct for i bonds and e bonds.

My MIL has most of her "savings" in an account at a B&M paying just about zilch. I pity the bank! She is in there several times a month for hours getting help balancing her check register, questioning her mailed statements, drinking the free coffee, and complainng to the manager if an employee looks at her wrong.

A couple decades ago I set her IRA up at Vanguard. For years I took care of it for her. A few years back she started to not trust me and has been going it solo. She calls my wife and complains about her Vanguard account and how she lost money back in 2009.

Last edited by sergeant on Sun Jul 08, 2018 2:46 pm, edited 1 time in total.

I have been trying to get my elderly mother interested in placing some of her CD/Savings in the Credit Union which is just other side of the intersection from the bank she loves (used to be Arlington Trust) where she might get $50. a month instead of a nickel (just a small exaggeration)
Some people such as my mother simply let the CDs roll over without thinking about it-perhaps that is why those banks don't do any better than they do -and the Credit Union has a "no penalty" CD

Where I live there is a big bank paying .01 and a credit union paying 1.1 the two are only about 1.5 blocks from each other.

Disclaimer: You might lose money doing anything I say. Although that was not my intent. |
Favorite song: Sometimes He Whispers Jay Parrack

A couple decades ago I set her IRA up at Vanguard. For years I took care of it for her. A few years back she started to not trust me and has been going it solo. She calls my wife and complains about her Vanguard account and hoe she lost money back in 2009.

My MIL has most of her "savings" in an account at a B&M paying just about zilch. I pity the bank! She is in there several times a month for hours getting help balancing her check register, questioning her mailed statements, drinking the free coffee, and complainng to the manager if an employee looks at her wrong.

A couple decades ago I set her IRA up at Vanguard. For years I took care of it for her. A few years back she started to not trust me and has been going it solo. She calls my wife and complains about her Vanguard account and hoe she lost money back in 2009.

LOL some of you guys kill me.

Disclaimer: You might lose money doing anything I say. Although that was not my intent. |
Favorite song: Sometimes He Whispers Jay Parrack

Very hard for them to understand the concept that the B&M bank was making a killing off of them.

That is my concern too -- that they are actually preying on those that aren't paying attention.

Preying on them? That's a little harsh. I mean, the unauthorized Wells Fargo accounts is one thing... but choosing a smaller interest rate than an online account is just a matter of personal choice.

B&M has its place for a lot of folks, including my family. We use a B&M TD Bank for regular checking at 0.1% because I value the convenience of their hours (including weekends), face-to-face immediate assistance and easy access to ATM's. I'm still not comfortable depositing checks through my iPhone. We also have an online account at Capital One 360 at 1.3% for most of our emergency funds. Been very satisfied with both.

Preying on them? That's a little harsh. I mean, the unauthorized Wells Fargo accounts is one thing... but choosing a smaller interest rate than an online account is just a matter of personal choice.

When a bank offers an attractive CD rate, and then it automatically renews at a very low rate, "preying" is not too harsh IMO. This is especially true if the customer is elderly and not as aware as they once were.

I spoke to my personal banker about this once. She said that retirees are comfortable with what they've done for decades. Many have their entire retirement in CD's. A half percent increase sounds great to them. She also said it was mostly seniors who stick with banks and cd's. I don't know about elsewhere. This is a retirement region, Prescott, Scottsdale, Phoenix. Lot's of seniors. I do know quite a few seniors who have gotten burned by brokers and FA's so they stick to CD's and R/E.
j

Actionably: if some of the Scottsdale seniors have 8 figures in CD's plus pension and so forth. They're doing fine.